The Czar of Benton Harbor

A series of questions and answers, citing sources and showing my work. I may update this post as needed. Bonus to visitors from Balloon Juice: Seeing someone from the Cato Institute admit he’s wrong. Afterward, there will be cake. Crow-flavored cake! [*]

1. What just happened in Benton Harbor, anyway?

Back in 2009, the city of Benton Harbor, Michigan had some pretty serious financial problems. First, there wasn’t enough money — unsurprising for an economically depressed town in a recession. Second, there was gross mismanagement, of the type you don’t need an MBA to spot:

-“Nobody in the city was responsible for the general ledger,” or accounting records.
-“The controller’s office is constantly operating in crisis mode.”
– “City is paying payrolls but not remitting withholding for many items, including balances due to the IRS, employee withholdings and pension.” That essentially means, money was taken out of employees’ paychecks but not sent to where it should have been sent. For example, taxes were taken out of paychecks but not sent to the IRS.
-Nobody was keeping track of money coming into the city and making sure it was deposited correctly.
-Employees were writing checks but not recording them.
-About 1/3 of bank statements could not be found, and many of those that had, had not been open.

It’s hard to say that Benton Harbor city government was being faithful to its citizens’ wishes or that it deserved their trust. When the allegations came to light — via a whistleblower in the city government — the state stepped in.

So far, so good. Even if I were a very hard-left liberal, I think I’d still maybe want an emergency financial manager, at least to uncover the fraud, which you’d be a moron not to suspect. (As it turns out, people do suspect it. Good for them.) A state panel recommended an emergency financial manager, and so did Democratic Governor Jennifer Granholm.

2. What did they find?

The investigation was pretty damning:

[Joseph] Harris was appointed by the governor in April [2010] to undo decades of financial hardship — he has to balance the budget in Benton Harbor.

“Things are going extremely well,” says Harris.

But he says, it hasn’t been easy. According to Harris, the person keeping the books before he arrived, the city’s finance director, wasn’t qualified.

“We had a non accountant running accounting,” says Harris.

Harris says, over the past couple years the city had accrued $80,000 to $100,000 in overdraft fees. Not only that, says Harris, Benton Harbor had hundreds of thousands of dollars in unpaid debt. He found the city owned [sic] nearly $500,000 to the IRS. Another $500,000 was owed to vendors and there was about $290,000 in property tax money the city had never distributed to schools and the library.

Harris says the city commission knew this finance director wasn’t qualified when she was hired several years ago. And he says, that isn’t the only instance of someone running a major city department without the right qualifications. Harris says, decisions were often made by city leaders to hire based on “loyalties.” For example: he says for the past 18 years, the city was using a garbage company that charged $144,000 more than anyone else, just because the city had always done business with this company.

“So it starts at the top. And frankly it starts with a commission that appoints a qualified city manager and a city manager that appoints qualified department heads,” Harris said.

And there are two commissioners who agree with Harris’ assessment. Commissioners James Hightower and Bryan Joseph say mismanagement of funds, hiring people who don’t have the proper skills, over spending and lack of good leadership are to blame.

3. But the cure can still be worse than the disease, right?

Of course. In fact, it often is.

4. What are the powers of an emergency financial manager?

They were always extensive, but they grew a lot under the new governor, Republican Rick Snyder. Michigan Public Act 4 of 2011, effective March 16, repealed the previous legislation governing emergency managers and replaced it with powers including but not limited to:

• Budget, expenditure, and contracting decisions.
• Unilaterally modifying the terms of existing collective bargaining agreements.
• Entering Chapter 11 bankruptcy.
• Recommending that noncomplying city officials be removed from office.
• Selling city assets.
• Disincorporating the government, with the governor’s approval.

Most notably, the emergency manager can

“Take any other action or exercise any power or authority of any officer, employee, department, board, commission, or other similar entity of the local government, whether elected or appointed, relating to the operation of the local government. The power of the emergency manager shall be superior to and supersede the power of any of the foregoing officers or entities.”

Those are some incredibly sweeping powers. They are much broader than those in the 1990 law that preceded it.

5. Sort of like a czar?

Yes! And while Republicans hate fake, powerless czars in Washington, the czar of Benton Harbor — who looks an awful lot like a Romanov — gets nothing but love from the GOP.

6. Who asked for this authority, and why?

Sadly, my team has some ‘fessing up to do. I’d written earlier that I didn’t know of any libertarians championing this scheme. It seemed improbable to me, thanks to the libertarian commitment to local rather than centralized government.

Unfortunately, one activist group claiming a lot of credit for the bill is the market-oriented Mackinac Center. Says a letter from their president:

Our policy ideas are appearing in bill proposals in Lansing. Gov. Snyder… signed legislation giving emergency financial managers more authority to keep cities and school districts out of bankruptcy, even if it means telling unions they can’t have everything they want. Pending legislation would lower the cost of public buildings by ending the practice of shielding union contractors from competition.

I have to wonder why the old law, or even just bankruptcy, isn’t obviously the better option. Here’s a page where the Mackinac Center explains their philosophy:

Modern economic experience demonstrates overwhelmingly that the free market is a powerful engine of economic prosperity. Nations the world over are clamoring to shed the chains of central planning and unleash the creative energy of free men and women. The principles of the American Revolution — individual liberty, limited government, the free market and the rule of law — have become the dominant paradigm of enlightened society.

Today no one calls an American political research institute a “democratic” institute because it has embraced democracy over monarchy. That battle was fought long ago, and democracy is deservedly the winner. We believe that the verdict is also in concerning economic systems, and the free market has won. To play on Churchill’s famous quip, the free market system is the worst type of economy, except for all the others. The Mackinac Center works to advance solutions that meet human needs while preserving the benefits of sound economic policy.

We look forward to the day when the myths and fears of free-market capitalism are dispelled, along with the misplaced faith in a benevolent, omnipotent state. By focusing on the actual problems and understanding the proper role of public and private institutions, we can give all Michigan citizens the greatest opportunity for peace, prosperity, and freedom.

Now, I actually agree with the quote just above. What I don’t understand, and what I don’t see anywhere, is why “individual liberty, limited government, the free market and the rule of law” require compromise on democracy and civil liberties. I don’t see how a czar is helpful here. Seems the opposite, no?

It’s never easy to call out a presumptive ally. It’s also a step I didn’t have to take. Once I’d found this little fact, I could have ignored it. Or I could have made up some privately unconvincing reason to change my mind — and then argued for it. Both might have been easier.

I didn’t do either, for two reasons.

First, it credibly signals that I’m an honest guy.

Second, I think it’s very important to get libertarianism right. Good and bad things both travel under the name “privatization.” Not all so-called privatizations increase individual liberty. There were good reasons to be suspicious of this one from the outset, and after reading the legislation, I think those suspicions have been confirmed.

Cities have been corrupt in the past. Cities have gone bankrupt. And they came out of it. Yes, both are awful. Yet neither one justifies punishing the citizens.

Is there some liberty-enhancing reason why the Mackinac Center took the stand they did? Perhaps. But if that reason isn’t coming through — not even to me — then they’re going to have to explain it a lot better. Or maybe admit they’re wrong.

What the new law looks like is a government power grab, only very roughly sugar coated for people who really like markets. But even assuming the very worst in Benton Harbor, I don’t see why the ordinary democratic process couldn’t muddle through.

7. Cui bono?

There’s a golf development in the works, and yes, it’s on city property — as reported by Rachel Maddow. That same property was supposed to be open to the town’s children in perpetuity. Pretty lousy, if you ask me.

(See, I don’t have a problem with public parks. Public parks don’t break people’s doors down at night and shoot them, or break up families, or end promising careers for no reason whatsoever, like the DEA. They don’t bomb people in faraway countries. They don’t spy on you. They don’t tell you what you can read or put in your body. They don’t forbid you from making an honest living. Public parks don’t even cost very much, especially on donated land. Public parks are… not too bad at all, even by soundly libertarian principles that I’ve already explained.)

But, as this DailyKos diarist notes, the golf course has been in the works since 2006 (you could even learn that by listening closely to Rachel Maddow, starting at 3:41). It’s not clear what the developers gain here, if anything, seeing as they’ve already won.

It’s not, in other words, the story of the state coming in and privatizing a public space for the benefit of wealthy developers, against local wishes, by way of draconian new powers. (Make no mistake: If this were the case, it would be awful.)

It’s more like an incompetent, probably corrupt city government selling off its own public space — and then the state comes in with draconian new powers — and does nothing whatsoever, even when it’s clearly got the power to act. It might have used those czar-like powers for good, but it didn’t. (Students of the czars won’t find this terribly surprising.)

Do the people of Benton Harbor like this state of affairs? I don’t know. Until the emergency manager is gone, maybe nobody will.

Were some Republicans involved? Yep. Were some Democrats? Yep. Were some libertarians? Sadly… yep. I don’t see a single agency, a single level of government, or even a major ideology with clean hands here. The whole incident just makes me want to puke.

8. What’s the relationship, as you see it, between these measures and the never fully realized goal of freeing the market from political influence?

None that I can see. It’s not clear that the town acted out of any principle, however misguided, when it did the golf course deal. My bet’s on fraud.

9. Okay, but is this really worse than the eminent domain case Kelo v. New London?

Welllll…. I don’t think so. Mark Thompson explains:

The notion that this is a bigger problem than Kelo, however unjust it may be, is absurd. Kelo was a SCOTUS case that thus inherently and directly affected the rights of millions. And not only did it affect the rights of millions, it had to do with the seizure of people’s homes for the benefit of corporate interests. Last I checked, the folks whose homes (and, as the case may be, small businesses) get targeted for eminent domain aren’t usually living in the ritzy part of town. I’m sorry, but I’m guessing for most people being forced to move and watch as decades of memories are destroyed to make room for a Big Box store is a few order of magnitude worse than losing control over one’s local government. That’s not to pooh-pooh what is going on here (which again appears to be bad in any number of ways), but let’s be honest: the roof over one’s head is a million times more relevant to someone than whether their local government is accountable.

Which I endorse, word for word. Kelo had implications for everyone in America, and we can’t easily undo them. Michigan voters could still rescind the powers of emergency managers, and they should. That wouldn’t fix all the problems in Benton Harbor, but it would still be a fine thing to do.

[*] A huge thanks to everyone who helped, particularly cfpete.